Goldman Sachs Group Inc is considering paying big multinational corporations more for their deposits than other banks as it paves the way for its entry into a mundane but prized business: managing cash. The global investment banking powerhouse and fifth-largest U.S. bank, which is six months into building the required technology, aims to start the service in the first half of 2020, according to two people familiar with the plan. They agreed to discuss internal strategy on the condition they not be named. The bank, which will earn fees and gain a captive client base for its foreign exchange business, could offer existing corporate clients more on deposits if they sign up for Goldman’s cash management services, a person familiar with the plan told Reuters.
Long considered a low-margin, utility-like service, the wholesale payments and cash management business generated about $250 billion in global revenue in 2017 for big banks, according to management consulting firm Oliver Wyman. The steady stream of income has grown more attractive to banks that have been shifting away from volatile areas such as trading and investment banking in the aftermath of the financial crisis a decade ago. Citigroup Inc, JPMorgan Chase & Co, Bank of New York Mellon Corp, HSBC Holdings PLC, Standard Chartered PLC and Deutsche Bank AG currently dominate the market, handling corporations’ payments and receivables across different regions.
As Goldman seeks to grow stable revenue by adding a cash management service for clients whom it already offers hedging and strategic advice, the investment bank further evolves to match rival universal banks’ range of businesses. Goldman Sachs is about half way to a goal management set in 2017 to generate $5 billion more in annual revenue by next year, largely by boosting reliable, feebased businesses. However, rivals privately scoff at the idea Goldman can gain significant market share in a business where contracts often last five years, clients tend to stick with their banks and a global network of banking licenses greases the wheels.
“The regulatory and operational costs of building a global cash management platform will be very steep and will take many years to achieve the scale that will justify the costs,” said a senior commercial banker at a large European bank. “Large multinational companies are consolidating number of banks they deal with, and they don’t tend to switch service providers frequently for functions like facilitating payments and managing payrolls.”
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